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What These Legal Requests Mean for Airline Investors

Two big requests are filed by US Airways and American Airlines.

In a surprise move last month, the Department of Justice threw a wrench in the merger plans of US Airways(NYSE:LCC) and American Airlines parent company AMR(NASDAQOTH:AAMRQ) by filing a lawsuit to block the $14 billion airline merger. As this issue is critical to US Airways investors, AMR stakeholders, and investors in other carriers, we will take a look at the latest requests by the airlines in this high-stakes legal battle.

Who were you talking to?In their latest request, US Airways and AMR want names; specifically, the names of the people who the DOJ interviewed prior to filing its lawsuit. The airlines need the information to defend their merger against the DOJ's allegations.

But the DOJ is fighting the request "because it requests protected attorney work product prepared in anticipation of litigation, and production of protected attorney work product that conveys attorneys' mental impressions, conclusions, opinions, and legal theories concerning this litigation." In layman's terms, the DOJ doesn't want to give up the names, because it would reveal legal preparations and confidential work on their side.

As expected, the airlines fired back saying:

Even though the interrogatory seeks only routine pretrial discovery of facts -- not interview memoranda, attorney notes, or other work product -- Plaintiffs claim that any response would somehow reveal their attorneys' mental impressions and legal theories, and that the information is covered by the law enforcement investigatory privilege. Not so.

In other words, the airlines claim the request is a routine fact collection, and that no privileged information is being asked for. It is quite likely that US Airways and AMR do not actually know every party the DOJ talked to. And since other mega airline mergers have been approved, US Airways and AMR may be searching for a new party that raised objections.

Previous mergersThe airlines are coming at this battle from another angle, too. US Airways/AMR have asked for the documents from the DOJ that contained the reasoning for approving the previous airline mergers. Since 2005, the DOJ has approved the mergers of US Airways and America West, Delta Air Lines(NYSE:DAL) and Northwest Airlines, and United Airlines and Continental Airlines, which formed United Continental Holdings(NYSE:UAL).

Delta and United Continental each formed the world's largest airline at the time of their mergers, in a similar way to how the new American Airlines Group would form the world's largest airline today. Since then, both Delta and United Continental have been working to build merger synergies, while US Airways and AMR have been left behind in the merger race.

Seeing as these previous mergers were approved without excessive concessions to either party or a DOJ lawsuit, US Airways/AMR must expect to get something out of such a report that would support their case.

The battle continuesIn one of the largest antitrust trials ever, the DOJ is pitted against US Airways and AMR, two major airlines looking to complete the airline industry's consolidation. In the course of this legal fight, there will be many developments to consider. Right now, the airlines have requested the names of who the DOJ talked to, and the reports showing why previous airline mergers were allowed.

But the DOJ is not ready to hand over these documents, and an upcoming court hearing should decide whether these documents have to be released. With the actual case headed to trial on Nov. 25, the next several months are sure to be critical to the future of US Airways and AMR. Based on the legal actions so far, both sides seem intent on vigorously fighting their side of the court battle.

Two great airlines without merger lawsuits

Alexander MacLennan owns shares of Air Canada, AMR, Delta Air Lines, and Gol Linhas. He is also long the following options: $22 January 2015 Delta calls, $25 January 2015 Delta calls, $30 January 2015 Delta calls, $17 January 2015 US Airways calls. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Author

Alexander MacLennan is a Fool contributor covering Industrials, Airlines, and Financial companies. He is always ready for a good growth or turnaround story and tries to find them before the market does.